1. Federal Govt. Collects Different Taxes Chap. 15

2. Two Principles of Taxation Benefit Principle – Those who benefit from a service, pay the tax. –Ex. Bridge tolls Ability-to-Pay Principle – Those who can pay more, are taxed at a higher rate. –Income tax.

3. Direct Tax Personal Income Taxes- Major source of revenue. In the U.S. we have a progressive tax. There are different brackets which the govt. changes. Corporate Income Taxes- Closest we have to a proportional tax. All corporations pay same amount based on profit levels.

4. Social Insurance Taxes (social security)- regressive tax. Fixed tax amount up to a max. amount regardless of income (direct tax). Excise taxes- indirect taxes on certain goods on a per-unit basic inc. gasoline, alcohol, and tobacco. Recently popular are sin taxes.

5. Tariffs- taxes on imported goods. Estate and Gift taxes- Progressive taxes based on the size of property or gift. Terms to know: Wealth, Income, entitlements, pension, medicare, State tax, Sales tax, property tax, Flat tax Disposable income, deficit spending v. debt

6. Types of Taxes Proportional tax – the same percentage is paid by everyone, regardless of income. Example: City business taxes and Medicare. Progressive tax – higher percentage on persons with higher incomes. Also corporate taxes are progressive. Regressive tax – A higher percentage on lower incomes. Example: State sales tax and Social Security.

7. Tax Forms W-4 – Filled out at time of employment and state how many withholdings and exemptions you will claim. Determines how much the govt. takes out in taxes W-2 – End of your statement from your employer 1040-EZ - Basic tax filing form

8. Supply-Side Economics Theory of creating economic growth through limited government involvement. Government involved in providing incentives to businesses “laissez-faire” approach Example – Ronald Reagan’s administrative policies Tax cuts and “trickle down” theory Look at chart p. 356

9. Demand-Side Economics Theory of economic growth through government involvement John Maynard Keynes Example – government spending during Great Depression and Bank Bailout of 2007 - 2010